business essay

CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Published: 23, March 2015

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INTRODUCTION

"The days of long past when the business of business was just business. The idea that a Corporation is merely a legal abstraction, devoid of heart and soul, no longer has legitimacy. The Corporation may be an economic wunderkind, but it falls short and often falls apart if it does not meet the needs of society, or if it does not act with a conscience. Today - no stakeholder - be it an share holder, an employee, the community or the Government - would accept a business whose rationale is limited to profits at any cost, or only to compulsions of its immediate business." [1]

Corporate Social Responsibility or CSR is a concept which is defined as,

"the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large". [2]

This paper deals with the concept of Corporate Social Responsibilities and its purview in India. It argues about the applicability/ suitability of the principle in various nations including India, and the propositions prevailing in India with regard to corporate social responsibility and the pros and cons of CSR. CSR is a legal obligation and is made mandatory in some nations and it is made voluntary in a few others.

Corporate Social Responsibility existed in India long before the concept of CSR was found. Corporates followed the principles of CSR, without knowing that it was called Corporate Social Responsibility. The conditions and changes which corporate social responsibility has brought in, is discussed. This paper also stresses the importance of CSR in India and the perspective of Corporate Social Responsibility in India.

CORPORATE SOCIAL RESPONSIBILITY: ITS PURPOSE AND ITS BENEFITS

There are a variety of reasons for which companies pursue CSR. Maignan et al. (2002) remarked that some business leaders have embraced the concept of CSR based on organizational values, and seek to provide leadership in the area. [3] Spar and Mure (2003) pointed out that corporations may react from threats to transaction costs, brand, and competitive positioning. [4] Maignan et al. (2002) also stated that CSR motivations might also include marketing, publicity, and innovation. [5]

The central issue of a firm is its appropriate role in business. [6] Corporate Social Responsibility helps building up a positive image and encouraging social involvement of employees, which in turn helps in developing a sense of loyalty for the organization. [7] The perspective of Corporate Social Responsibility varies from group to group. [8]

Milton Freedman claims that the statement, "the enlightened corporation should try to create value for all of its constituencies" which is equivalent to saying, "the social responsibility of business [is] to increase its profits." [9] It is stated that CSR is justified in terms of deontological ethical considerations (e.g., the work of Andrews, Sethi, and Carroll) [10] , which implies that socially responsible behaviour occurs at the expense of profitability.

It is also said that CSR is really nothing more than corporate advertising, which makes the consumers aware of the firm's new products with different features for which they are willing to pay. [11] Though a firm advocates corporate social responsibility for promoting sustainable development which is beneficial for the society, it benefits the firm by increasing its financial performance and reducing the operating costs, enhancing the brand image and reputation, increasing customer loyalty and sales, increasing the ability of the firm to attract and retain employees, leading to reduced regulatory/ activists' oversight, reducing risk thereby facilitating easier finance or access to capital. [12]

In order to compensate or revive the natural resources and environment, the concept of Corporate Social Responsibility was introduced. Corporations set up social welfare foundations, charity trusts, etc., in the name of CSR activities for the satisfaction of giving their contribution to the society; increase their visibility; and, for long-term gains like employee and customer loyalty, tax-benefits etc. [13] Corporate Social Responsibility is different from traditional corporate philanthropy which emerged from various factors such as concern for the welfare of immediate members of the corporate body including employees and their families, a desire among the corporate personalities to be a part of the society and to establish a strategic relationship with the government and, in particular, local administration, and above all, to create trust and similar boards to uphold the owner's holdings in the enterprise which would contribute to charitable works for the public. [14] The main reason as to why the concept of CSR has gained importance is 'because corporate houses intervene in so many areas of life, they must be responsible towards society and environment'. [15]

The World Business Council for Sustainable Development (WBCSD 2000) states that the companies have a responsibility to the stakeholders which is enumerated as under:

â€¢ To yield high profits to the owners and investors;

â€¢ To indulge in fair, ethical treatment as partners to business partners;

â€¢ To give consistent, fairly compensated employment to the employees;

â€¢ To maintain the image of the industry among the competitors;

â€¢ To distribute high quality products and services to the customers;

â€¢ To be a consistent customer to the supplier upon whom the business of the supplier is based;

â€¢ To meet the expectations of the non-governmental organizations;

â€¢ To provide a stable employment for the community members of the communities. [16]

CORPORATE SOCIAL RESPONSIBILITY: AN INTERNATIONAL PERSPECTIVE

As the wake of liberalization has paved way for the flow of foreign markets and the multi-national corporations to play influential role in meeting day to day challenges, the multi-national corporations have to procure their interests by securing the substantial development, where social and ecological balance prevail. The importance of the corporate social responsibility can be understood only by studying its position in various countries. [17] This paper takes up the positions of Corporate Social Responsibility in a few economies like United States of America, France and Germany and compares it with the Indian position by providing the measures and the reasons for making a CSR voluntary or mandatory.

POSITION OF CORPORATE SOCIAL RESPONSIBILITY IN USA:

The United States is the birth place of the concept of Corporate Social Responsibility. [18] The tradition of corporate philanthropy is very strong in the United States and CSR activities have always been very popular, which include employee volunteering, matched giving, involvement with organizations with a very strong local community focus. [19] The Government plays an important role in the regulation of CSR, wherein the USA - Community Reinvestment Act (CRA) regulates CSR in financial services sector by setting minimum requirements, monitoring compliance, incentives through tax credits, impacts on mergers and acquisitions, etc. [20]

The economy of the United States is market-oriented with comparatively less interventions on part of the federal government, wherein the business landscape includes some of the most powerful corporations in the world. [21] US firms enjoy more flexibility than companies in terms of state regulation in many other industrial countries. [22] Regardless of having the world's largest national economy, US faces some important challenges, such as large budget and trade deficits and a devaluing currency with consumer debt at a very high level, and other relevant problems are poverty and high inequalities in the distribution of income. [23]

Public sector engagement for CSR at the federal level is fragmented, low and patchwork in nature in the US. There is no visible formulation of CSR strategy and coordination point at the federal level or visible contact person for CSR by the government, but, there are areas where the government shows development and application of CSR policy. [24] By launching a national coordination point might help in integrating the still fragmented CSR policies of different US agencies and institutions and might help in constituting a step towards a more coherent CSR framework at the federal level and allow the federal government in contributing to the concept of CSR; and, the partnerships which are existing could be monitored in a more stringent way. [25] US can use its influence and existing strengths in stimulating the global social responsible market. [26]

The US government passed laws to address the issues that arose due to the social and environmental concerns in the late 1960s and early 1970s. [27] The legislations [28] enacted included:

The statutes: The Clean Air Act Amendments,1977, The Federal Water Pollution Control Act, for pollution and hazardous waste control;

The statutes: The Equal Employment Opportunity Act,1972, The Occupational Safety and Health Act, 1970, during work in workplaces;

There was no requirement on reporting the performance of the firms to the public, while the companies had to meet the requirements set by the state and federal government. [29] It emerged when companies used CSR reports as damage control. [30]

The trends in Canada regarding Corporate Social Responsible activities have been similar to those in the US. [31]

POSITION OF CORPORATE SOCIAL RESPONSIBILITY IN GERMANY:

In Germany, CSR is a fundamental component in the social market economy system of a country. [32] The number of corporates which assume social responsibility and integrate voluntary social commitment in their corporate strategy is constantly growing in Germany. [33] The Federal Government wishes to promote this social responsibility [34] by framing National Engagement Strategy that pursues the following strategic objectives:

Assimilate foundations and the civic activities of business enterprises;

Enhance recognition of and appreciation for the work done by volunteers;

Develop the coordination of the civic engagement policy projects conducted by Germany's federal, state and municipal governments;

The above strategy was a result of a long debate, right from 2003 and was framed only on 06.01.2010. [37]

POSITION OF CORPORATE SOCIAL RESPONSIBILITY IN FRANCE:

Corporations today face a healthy amount of regulation, whether it is through self governance or government through legislation; the evolution of corporate governance is broad and far reaching with a greater focus on sustainable business practices. [38] The European Monitoring Centre on change in order to know the developing models of best practice in the field of working and employment conditions and CSR took some of the European corporates as case studies and found that the overall picture in France is one of moderate development of CSR due to the presence of a system of state regulations and agreements governing labour relations, issues of social responsibility at the enterprises examined relate mainly to the restructuring and subcontracting activities that resulted in company redundancies following a period of economic crisis. [39] Furthermore, in France, quality programs (of those discussing CSR) were more mentioned as illustrative of responsibility than philanthropy programs. [40] To effectively start on with the challenges of today and tomorrow, Air France has created anÂ organizationÂ that reflects the diversity of sustainability issues. Environment and Sustainable Development divisionÂ comprises of two departments. [41]

POSITION OF CORPORATE SOCIAL RESPONSIBILITY IN INDIA

Indian corporate's accepts and follows the definition given by World Business Council for Sustained Development which says,

"Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large". [42] Â

Indu Jain, the Chairperson of the Times of India Group, New India remarked that,

"Corporate Social Responsibility PracticesÂ in IndiaÂ sets a realistic agenda of grassroots development through alliances and partnerships with sustainable development approaches. At the heart of solution lies intrinsic coming together of all stakeholders in shaping up a distinct route for an equitable and just social order....".

Corporate social responsibility is not a new theory in India, [43] but the real development of the concept of CSR is seen only from the late 90's. The initiative for the development of the concept was made in 1998 by the Confederation of Indian Industry (CII), a business association and the India's largest industry by publishing its voluntary code "Desirable Corporate Governance: A Code". [44] The Ministry of Corporate Affairs too, in order to promote better corporate governance practices and to raise the standard of corporate governance in India towards achieving stability and growth have established a "National Foundation for Corporate Governance(NFCG)", a partnership with the CII, the Institute of Company Secretaries on India (ICSI)and the Institute of Chartered Accounts of India (ICAI). [45]

CSR is not new to India, companies like TATA and BIRLA have been contributing to the case for social good and welfare in their operations for decades long before CSR become a popular cause. [46] Â

Long referred to as a company's integral part, corporate social responsibility is finally being taken seriously by Indian tech companies as they embark on a gamut of philanthropic activities. [47]

Mr. Narayan Murthy firmly underlines the significance of CSR:

"for benefit of globalization and technology to reach the poor, the private sector, philanthropic institutes and individuals should cooperate and establish partnership with government institutions and this would lift millions of our people out of the poverty, provide them with opportunities and make them participate in the process and progress of globalization". [48]

According to Indian Oil Corporation, "CSR is a cornerstone of our enduring success". The mission of Indian Oil Corporation is "to help enrich the quality of life of the community and preserve ecological balance and heritage through a strong environment conscience". [49]

For the Indian companies, the corporate social responsible activities revolve and are centered around education, rural upliftment and helping the physically challenged. [50]

A 'national-local' approach may be best for Corporate Social Responsibility in India to have a meaningful impact on society in the coming decade. [51] National in the sense that there will need to be nationwide alliances and databases in order to quickly learn best practices, share innovations, and 'scale-up' pilot programmes. [52] Local, meaning that it will require organizations to efficiently implement programmes at the grassroots level, as well as mobilize volunteers to serve their local communities. [53]

The position with regard to CSR in India is not static. India does not mandate CSR as a statutory obligation. The position of CSR in India, whether it should be mandated or should it be made voluntary is discussed below:

SHOULD CSR IN INDIA BE MADE MANDATORY OR VOLUNTARY?

Corporate Social Responsibility is made mandatory in some countries and voluntary in others. The regulators in different countries have their own requirements for seeking CSR reports on different aspects of CSR activities, wherein some countries mandate it in the form of disclosures to shareholders and other countries require it in the form of various returns and statements to be filed at different points of time. [54] With regard to the narrowly- defined business- oriented research question of making Corporate Social Responsibility mandatory or voluntary, as is the case at present, and the proposal to make it mandatory in India with a levy of 2% of profits [55] for the Corporations, the optimal solution would be to make it voluntary for a number of reasons. The main reason would be that once it is made mandatory, it would it would be seen like any other compliance of legal requirement and would trigger off a defensive action in business firms, where the result would be that experts would be appointed to manage data in a very presentable form, authorities to access the compliance and issue show cause notice, corporate managers to file the replies for the notices, and advocates and lawyers to argue in courts. [56] The issue of mandatory and voluntary reporting has long been debated, since the European Commission's recommendations on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of firms. [57] On the other hand, the officials of the Commission countered that a mandate for preparing such reports would be less effective than a recommendation for voluntary reporting. [58]

Though the recommendation is non-binding, the real significance of CSR is fulfilled. In case it is made mandatory with the proposition to give up 2% of profits by the corporates, the corporates who spend more than 2% of profits towards CSR will be affected and will be lessened. The real meaning of Corporate Social Responsibility will be hindered if it made mandatory. Further, the very purpose of a business is to increase its profits and the purpose of indulging in CSR activities is only additional or optional for the firms. In view of all these reasons, it is submitted that CSR should only be made voluntary and should not be made mandatory.

CRITICS OF CORPORATE SOCIAL RESPONSIBILITY

Milton Friedman in his article in The New York Times Magazine remarked that "the one and only social responsibility of business, is to increase profits for shareholders." [59] The fundamental goal of a Corporation or firm is to increase value for its shareholders and not any single stakeholder. [60] Neil chamberlain, a Corporate Social Responsibility author and critic, remarked that the social responsibility movement of every business is an effect 'trapped' in the business system itself, and, the dream that socially responsible corporation can transform our society is illusionary. [61] If this is the scenario then the question of what purpose does corporate social responsibility (CSR) serve in today's world, if any at all arises. [62] The criticisms thrown at corporate social responsibility (CSR) include the following:

MISAPPROPRIATION OF CORPORATE RESOURCES:

When companies indulge in CSR practices, the managers will misappropriate corporate resources by diverting them from their rightful claimants, whether those are the firm's owners or, sometimes, employees. [63]

MISALLOCATION OF EFFICIENCY:

It is said that corporations can make their contributions best to the society if they do what they do best in their work. [64] When firms indulge in CSR activities, it entails them in diverting resources best used for economic purposes to advance for purposes for which the resources are poorly suited, in the sense that they distract from the activities of the society by making wrong allocations, i.e., they do not fulfill people's needs at the right time. [65]

CORPORATE SOCIAL RESPONSIBILITY- MISUSED AS A MARKETING PLOY:

The plethora of CSR awards given out to companies divulges an appalling fact that some companies whose very existence and the nature of products marketed is considered to be socially irresponsible are being recognized for performing some socially responsible acts. [66] For example, British American Tobacco won a United Nations Environment Program / Sustainability reporting award for its annual social report, which was criticized that winning a CSR award may well be a tool to deflect some criticisms against a socially irresponsible outlook of selling products that cause so much known damage to health. [67]

OVER- BURDENING MANAGERS:

When managers of firms are asked to advance economic performance and be socially responsible, it destines managers to do neither, which is a recipe for distraction, frustrating the efforts of the managers to advance either objective, and worse is the condition providing managers with a convenient excuse when they fail in achieving economic objectives. [68] Inefficiency or mismanagement can be attributed to "socially responsible" efforts. [69]

LACK OF REGULATION OF CSR:

Corporate Social Responsibility is voluntary corporate action in some nations as discussed earlier, and it goes beyond simple compliance with domestic regulations and laws. [70] Due to this voluntary character and the lack and need of regulations, the information that companies provide to stakeholders such as investors and consumers is not standardized, and, it is often not feasible to compare CSR performance on a detailed level, especially that of multinationals across geographic borders. [71]

DISTRACTION FROM PROFITS:

Corporate Social Responsibility is said to be a distracting business for managers from securing profits for the owners of corporations. [72]

ABUSE OF POWER THROUGH CORPORATE SOCIAL RESPONSIBILITY:

Due to the lack of formal regulations of corporate social responsibility and the voluntary nature, CSR inadvertently places even more power with the decision- making companies, which is due to the fact that companies are given liberty to shape and define corporate social responsibility as they deem fit and how to practically apply CSR, increasing the risk of further opportunity for abuse of power. [73]

TRANSFERRING THE PLACE OF BUSINESS TO ESCAPE CSR LIABILITIES:

An important criticism is that advanced economies often moved their industries to other parts of the world where there are less stringent corporate social responsibility standards, as a result of which the other countries too get depleted of their resources due to the acts or on their behalf, and these indexes do not factor those in. [74]

CONCLUSION

Today's informative world throws light on the general public information regarding CSR. The corporate bodies in present world cannot be successful without taking into account the social responsibility. [75] CSR has been an important component for any organization to have perpetual success and to create brand. [76] It is said that initially there are three "generations" of CSR in varying stages of sophistication. [77] The first generation of corporate social responsibility has established that companies can contribute to society without risking commercial success; today, the second generation is developing more fully as CSR gradually becomes an integral part of companies' long-term business strategies; and, finally, the third generation addresses significant societal issues, such as poverty and cleanup of the environment. [78] Companies are mainly reactive and less pro-active in the formulation of their CSR policy, where communication on the CSR policy and monitoring of CSR compliance in the supply is very limited. [79] The Indian perception on CSR can partly be explained by the fact that it is coloured by the impact of macro processes that work against the poor, which is the environment within which companies operate where in, contribution to socio-economic development plays an important role in the Indian context. [80] Companies are expected to contribute both to community development (responsibility at local level) and to have an added value to the economic development of the country (responsibility at macro level) where these aspects are not incorporated in the CSR frame of reference. [81] An integral approach of different CSR issues is not always possible as there might be conflicting demands. [82] Social and environmental issues may be conflicting with economic development. [83] When such a dilemma occurs, companies tend to give more emphasis to their own economic interests and/or to the matching interest of the host country. [84] Since CSR is not very well developed in policy and especially in practice, so-called conflicting demands between economic interests and (other) CSR issues might be used to postpone working on better CSR policies and performances. [85] Companies should make more use of CSR risk assessments or CSR scans. [86] This will have overall positive effects on their CSR policy and practice and it will also stimulate a pro-active approach of companies.

This paper throws light on the concept of CSR in various countries where CSR is made mandatory and in countries where CSR is voluntary, and it analyzes the position of Corporate Social Responsibility in India and answers the research question as to whether CSR should be made mandatory or voluntary. It is also justified that the results of CSR are best obtained when CSR is made voluntary than mandatory.

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